ICAP P Cost and management accounting Second edition published by Emile Woolf International Bracknell Enterprise & Innovation Hub Ocean House, 12th Floor, The Ring Bracknell, Berkshire, RG12 1AX United Kingdom Email: info@ewiglobal.com www.emilewoolf.com © Emile Woolf International, January 2015 All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, without the prior permission in writing of Emile Woolf International, or as expressly permitted by law, or under the terms agreed with the appropriate reprographics rights organisation You must not circulate this book in any other binding or cover and you must impose the same condition on any acquirer Notice Emile Woolf International has made every effort to ensure that at the time of writing the contents of this study text are accurate, but neither Emile Woolf International nor its directors or employees shall be under any liability whatsoever for any inaccurate or misleading information this work could contain `© Emile Woolf International ii The Institute of Chartered Accountants of Pakistan Certificate in Accounting and Finance Cost and management accounting C Contents Page Syllabus objective and learning outcomes v Chapter Inventory valuation Inventory management 21 Accounting for overheads 45 Marginal costing and absorption costing 77 Cost flow in production 95 Job, batch and service costing 133 Process costing 153 Budgeting 201 Standard costing 241 10 Variance analysis 253 11 Target costing 319 12 Relevant costs 331 13 Cost-Volume-Profit (CVP) analysis 343 14 Decision making techniques 367 15 Introduction to financial instruments 391 16 Time value of money 419 17 Sustainability reporting 469 Appendix 487 Index 491 © Emile Woolf International iii The Institute of Chartered Accountants of Pakistan Cost and management accounting © Emile Woolf International iv The Institute of Chartered Accountants of Pakistan Certificate in Accounting and Finance Cost and management accounting S Syllabus objectives and learning outcomes CERTIFICATE IN ACCOUNTING AND FINANCE COST AND MANAGEMENT ACCOUNTING Objective To equip candidates with techniques of cost accounting to provide a knowledge base for decision making skills Learning Outcome On the successful completion of this paper candidates will be able to: establish the costs associated with the production of products and provision of services demonstrate an understanding of different costing systems prepare various types of forecasts and budgets apply the concepts of costing in the decision making process demonstrate a functional knowledge of financial instruments apply concept of time value of money understand the concepts of sustainability reporting Grid Weighting Costs associated with the production 15-20 Costing system 20-30 Budget and budgetary controls 10-15 Decision making 20-25 Financial instruments 5-10 Time value of money 5-10 Sustainability reporting 5-10 Total © Emile Woolf International v 100 The Institute of Chartered Accountants of Pakistan Cost and management accounting Syllabus Ref Contents A Costs associated with production Level Basis of valuation - FIFO, weighted average, lower of cost and net realizable value 2 Economic Order Quantity Safety stock Re-order level Manufacturing expenses - actual and applied © Emile Woolf International vi Learning Outcome LO1.1.1: Apply inventory valuation methods (namely, FIFO, weighted average, lower of cost and net realizable value) in simple scenarios LO1.1.2: Comment on the suitability of inventory valuation under FIFO, weighted average, lower of cost and net realizable value LO1.1.3: Compare inventory valuation under FIFO, weighted average, lower of cost and net realizable value LO1.1.4: Calculate NRVs of inventories in a given scenario LO1.2.1: Describe the economic order quantity (EOQ) and apply the concept in given scenarios LO1.2.2: Calculate the EOQ from data provided LO1.3.1: Describe safety stocks for inventories LO1.3.2: Explain the reasons for maintaining safety stock LO1.3.3: Calculate the safety stock from data provided LO1.4.1: Explain the re-order levels and the objectives of setting reorder levels LO1.4.2: Calculate re-order levels by using the data provided LO1.5.1: Describe manufacturing overheads using examples LO1.5.2: Compare manufacturing, administrative and selling costs LO1.5.3: Identify manufacturing overheads from data provided LO1.5.4: Describe and distinguish between actual overhead and applied overhead LO1.5.5: Calculate applied overheads using data provided The Institute of Chartered Accountants of Pakistan Syllabus objectives and learning outcomes Syllabus Ref Contents Level Learning Outcome Costs associated with production (continued) Over or under absorbed overhead LO1.6.1: Compare actual and absorbed overheads from data provided LO1.6.2: Analyze over or under absorption in terms of expenditure and volume variances LO1.6.3: Account for over or underabsorbed overheads Production and service departments LO1.7.1: Identify production and service departments in a manufacturing facility and analyze their related cost LO1.7.2: Explain the basis of allocation of cost of service department to production department Apportionment, allocation and absorption of service departments' overheads to production LO1.8.1: Allocate costs to production and service departments using information provided LO1.8.2: Allocate costs of service departments to production department using data and information provided B Costing systems Marginal costing LO2.1.1: Explain the concept of marginal costing and apply on given data LO2.1.2: Explain how marginal costing helps managerial decisions using examples Absorption costing LO2.2.1: Describe and apply absorption costing approach in given scenarios LO2.2.2: Compare marginal costing and absorption costing Manufacturing cost accounting cycle LO2.3.1: Explain the flow of cost in production process using examples LO2.3.2: Prepare accounting entries for flow of cost © Emile Woolf International vii The Institute of Chartered Accountants of Pakistan Cost and management accounting Syllabus Ref Contents Level Learning Outcome Costing systems (continued) Job order costing Process costing Treatment of Joint and ByProducts Cost of services rendered Standard costing Variance analysis-material, labour and overhead 10 Target costing © Emile Woolf International viii LO2.4.1: Describe job order costing LO2.4.2: Calculate the cost of a job and inventories by application of job order costing LO2.4.3: Prepare accounting entries under the job order costing system LO2.5.1: Describe the process costing including the treatment of normal / abnormal loss / gain LO2.5.2: Calculate cost of product and inventories by application of process costing LO2.5.3: Prepare accounting entries under the process costing system LO2.6.1: Describe joint and by products using examples LO2.6.2: Allocate joint production costs using sales value, physical units, average units and weighted average methods LO2.6.3: Account for by-products using recognition of gross revenue, recognition of net revenue and replacement cost approaches LO2.7.1: Explain how departmentalization in a service organization helps in cost planning and control LO2.7.2: Calculate cost of services rendered by a service organization LO2.8.1: Explain standard costing using examples LO2.8.2: Perform standard setting for material, labour and factory overhead LO2.9.1: Calculate, analyze and interpret various variances relating to material, labour and factory overhead LO2.10.1: Describe target costing and how target cost is determined LO2.10.2: Apply the target costing tools to given scenarios The Institute of Chartered Accountants of Pakistan Syllabus objectives and learning outcomes Syllabus Ref Contents C Budget and budgetary controls Level Planning, forecasting and budgeting of sales, cost and profit Learning Outcome LO3.1.1: Explain how budgeting process works and how it fits into overall planning and control LO3.1.2: Prepare forecasts on given data and assumptions LO3.1.3: Identify and describe different purposes of budgeting LO3.1.4: Identify and describe the various stages in the budget process LO3.1.5: Prepare following types of budgets: fixed and flexible budgets; performance budgeting; sales budget; production budget; direct materials budget; direct labour budget; manufacturing overhead budget; inventory budget; cost of goods sold budget; selling and administrative expenses budget with inflation aspects; Master/cash budget; zero based budgets, and capital expenditure budgets; LO3.1.6: Describe the human & motivational aspects of budgets LO3.1.7: Describe the budgeting and planning in a non-profit organisation LO3.1.8: Prepare forecast and budgets for a non-profit organisation © Emile Woolf International ix The Institute of Chartered Accountants of Pakistan Cost and management accounting Syllabus Ref Contents D Decision making Level Learning Outcome Opportunity cost LO4.1.1: Describe opportunity cost using examples Relevant cost LO4.2.1: Describe relevant costs using examples LO4.2.2: Identify the costs that are relevant to a particular decision in given data Breakeven analysis LO4.3.1: Explain the break-even point using examples and margin of safety LO4.3.2: Calculate the breakeven point in quantity and amount from information provided LO4.3.3: Apply cost volume profit (CVP) analysis and explain its usefulness for management Make or buy decisions LO4.4.1: Apply marginal and relevant costing concepts to analyze make or buy options LO4.4.2: Analyze make or buy options in case of capacity constraints LO4.4.3: Discuss using examples the importance of qualitative consideration in make or buy decisions Pricing for special orders LO4.5.1: Perform incremental cost benefit analysis for a special order Further processing decisions LO4.6.1: Perform incremental cost benefit analysis for further processing costs Utilization of spare capacity LO4.7.1: Analyze the impact of spare capacity on management decisions regarding make or buy, special order and further processing © Emile Woolf International x The Institute of Chartered Accountants of Pakistan Cost and management accounting Key considerations for professional accountants Energy efficiency Identifying large environmental costs that could be reduced Monetizing procedures for costs, savings, and revenues related to any business activities with a potential environmental impact Using measurement and targets and ensuring accountability Small (and no cost) changes can lower energy costs and reduce carbon emissions Spreading awareness Waste and water minimization Minimizing materials waste Tracking physical accounting information Reviewing and understanding the impact of legislation regarding waste Changing processes 2.2 Carbon foot printing Key theme: Using carbon accounting to calculate organizational carbon footprint in order to (a) manage GHG emissions and make reductions over time, (b) report the footprint accurately to external stakeholders, and (c) invest in lower energy technologies and more efficient methods of operating Key considerations for professional accountants Moving beyond a GHG inventory Determine how to manage carbon emissions data Distinguish between boundaries, in terms of organizational and product footprints, and between entities in the supply chain Establish principles of a carbon audit report and the key issues to be disclosed in external reports for stakeholders Greenhouse gas inventory audit 2.3 Improving information to support decisions and reporting Key theme: Improved social and environmental performance and transparency requires information flows to support the strategic and operational management of sustainability issues The required environmental and social information to support management and operational decisions is not, however, often readily available, either being non-existent or limited to measuring liabilities for compliance purposes Key considerations for professional accountants Moving from a conformance- to an integrated performance-based view of accounting for sustainability impacts Identifying, defining, and classifying costs to motivate desired activities and behaviors Working across organizational functions, particularly integrating accounting, procurement and operations Accounting for social costs and valuing social impacts Using environmental and social cost and other non-financial information for project appraisal and capital budgeting © Emile Woolf International 482 The Institute of Chartered Accountants of Pakistan Chapter 17: Sustainability reporting 2.4 Integrated management control systems Key theme: Developing integrated management and (internal) control systems to ensure alignment of sustainability performance to organizational objectives Key considerations for professional accountants MCSs should incorporate specific activities that support sustainability goals and objectives into the organization’s overall management and control cycle MCSs should ideally help to integrate social and environmental factors alongside financial and quality factors (Internal) control effectiveness depends on effective governance and risk management Setting out the role of internal auditing Integrating sustainability (and particularly environmental) factors into financial processes, such as budgeting and forecasting 2.5 PERFORMANCE MEASUREMENT AND KPIs Key theme: Using strategic performance measurement systems, performance measures, and KPIs to ensure the delivery of strategic and sustainability-related objectives Key considerations for professional accountants Integrate sustainability measures where they have been identified as an important driver of strategy Judge how scientific cause-and-effect relationships between measures need to be to inform decisions Consider how sector or industry norms can influence KPI selection Develop and use eco-efficiency indicators to link monetary and physical information for decision making Develop and use socio-efficiency indicators to better understand social impacts Consider how to usefully present metrics and KPIs in internal and external reporting 3.4 Part three: Reporting perspective 3.0 Introduction External reporting by organizations has evolved over the years from providing financial statements and accompanying notes to the present day, where the trend is to provide an annual report, consisting of financial statements, some form of management commentary, some form of environment, social, and governance performance data, and, particularly from many larger organizations, a separate report covering nonfinancial sustainability and corporate social responsibility disclosures In addition, many jurisdictions, either by way of statute or listing rules, impose rules relating to continuous disclosure of information about specified events or matters that would be of concern to participants in the securities market Jurisdictions likewise adopt different approaches to annual, half-year, and quarterly cycles of reporting © Emile Woolf International 483 The Institute of Chartered Accountants of Pakistan Cost and management accounting 3.1 DEVELOPING AN ORGANIZATIONAL REPORTING STRATEGY Key theme: A reporting strategy that will yield a complete picture of an organization’s performance for a range of stakeholders is needed This will involve using sustainability reporting frameworks and principles, such as GRI’s Reporting Framework, and ensuring that their use contributes to meaningful sustainability and integrated reporting Integrated reporting is a new paradigm in reporting that requires connecting an organization’s strategy, its financial performance, and its performance on environmental, social, and governance issues Key considerations for professional accountants Determine the range of users and their needs for various types of reports and disclosures Project planning and management, and structured processes, will underpin a successful reporting regime Break down functional silos to facilitate effective integrated reporting Use reporting frameworks and guidelines to help develop reporting processes and to ensure that all relevant sustainability information is disclosed Disclosing performance across the value supply chain Meeting stakeholder needs in local markets 3.2 Reflecting sustainability impacts in financial statements Key theme: Incorporating environmental and social issues into financial statements to support an organization’s stewardship role and to enable users to make more well-informed decisions regarding environmental and social impacts on assets, liabilities, income, and expenditures Key considerations for professional accountants Establishing how to reflect environmental (and, where applicable, other sustainability-related) liabilities and costs in financial statements prepared under IFRSs Determining specific sustainability disclosure requirements under national securities regulations and Generally Accepted Accounting Principles (GAAP) Considering additional information and disclosure to improve transparency on environmental performance Determining materiality in the context of what information management believes is important for investors to make informed financial decisions about an organization 3.3 Narrative reporting for enhanced transparency to investors Key theme: Using narrative reporting to provide greater transparency on business performance and to ensure that sustainability-related disclosures are useful to investors Key considerations for professional accountants Avoiding over-disclosure and clutter Ensuring a forward-looking orientation Viewing narrative reporting as a fair reflection of the management information used internally © Emile Woolf International 484 The Institute of Chartered Accountants of Pakistan Chapter 17: Sustainability reporting 3.4 Determining materiality Key theme: Understanding and reconciling approaches to applying materiality to sustainability and integrated reporting Key considerations for professional accountants In defining report content, materiality should be considered along with the need for other important information characteristics Accountability for materiality thresholds and judgments Linking the determination of materiality to strategy, risk management, and sector benchmarks Determining a process for resolving different expectations regarding materiality Where information is reported can help (a) to reinforce materiality criteria, and (b) to keep the length of disclosures manageable (particularly where the application of materiality might vary between reporting for wider stakeholders from investors) 3.5 External review and assurance of sustainability disclosures Key theme: Establishing an approach to external assurance that adds credibility to an organization’s reporting and provides internal benefits, such as helping to improve underlying reporting processes Key considerations for professional accountants The quality of external assurance is directly linked to stakeholder inclusiveness Clarifying the purpose and scope of the assurance The choice of service provider Establishing the type of engagement Enhancing the assurance statement © Emile Woolf International 485 The Institute of Chartered Accountants of Pakistan Cost and management accounting © Emile Woolf International 486 The Institute of Chartered Accountants of Pakistan Certificate in Accounting and Finance Cost and management accounting A Appendix Contents Present value table Cumulative present value © Emile Woolf International 487 The Institute of Chartered Accountants of Pakistan Cost and management accounting PRESENT VALUE TABLE This table shows the discount factor for an amount at the end of n periods at r% Interest rates (r) Periods (n) 1% 990 980 971 961 951 2% 980 961 942 924 906 3% 971 943 915 888 863 4% 962 925 889 855 822 5% 962 907 864 823 784 6% 943 890 840 792 747 7% 935 873 816 763 713 8% 926 857 794 735 681 9% 917 842 772 708 650 10% 909 826 751 683 621 10 942 933 923 914 905 888 871 853 837 820 837 813 789 766 744 790 760 731 703 676 746 711 677 645 614 705 665 627 592 558 666 623 582 544 508 630 583 540 500 463 596 547 502 460 422 564 513 467 424 386 11 12 13 14 15 896 887 879 870 861 804 788 773 758 743 722 701 681 661 642 650 625 601 577 555 585 557 530 505 481 527 497 469 442 417 475 444 415 388 362 429 397 368 340 315 388 356 326 299 275 350 319 290 263 239 16 17 18 19 20 853 844 836 828 820 728 714 700 686 673 623 605 587 570 554 534 513 494 475 456 458 436 416 396 377 394 371 350 331 312 339 317 296 277 258 292 270 250 232 215 252 231 212 194 178 218 198 180 164 149 Interest rates (r) Periods (n) 11% 901 812 731 659 593 12% 893 797 712 636 567 13% 885 783 693 613 543 14% 877 769 675 592 519 15% 870 756 658 572 497 16% 862 743 641 552 476 17% 855 731 624 534 456 18% 847 718 609 516 437 19% 840 706 593 499 419 20% 833 694 579 482 402 10 535 482 434 391 352 507 452 404 361 322 480 425 376 333 295 456 400 351 308 270 432 376 327 284 247 410 354 305 263 227 390 333 285 243 208 370 314 266 225 191 352 296 249 209 176 335 279 233 194 162 11 12 13 14 15 317 286 258 232 209 287 257 229 205 183 261 231 204 181 160 237 208 182 160 140 215 187 163 141 123 195 168 145 125 108 178 152 130 111 095 162 137 116 099 084 148 124 104 088 074 135 112 093 078 065 16 17 18 19 20 188 170 153 138 124 163 146 130 116 104 141 125 111 098 087 123 108 095 083 073 107 093 081 070 061 093 080 069 060 051 081 069 059 051 043 071 060 051 043 037 062 052 044 037 031 054 045 038 031 026 © Emile Woolf International 488 The Institute of Chartered Accountants of Pakistan Appendix CUMULATIVE PRESENT VALUE This table shows the annuity factor for an amount at the end of each year for n years at r% Interest rates (r) Periods (n) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 0.990 1.970 2.941 3.902 4.853 0.980 1.942 2.884 3.808 4.713 0.971 1.913 2.829 3.717 4.580 0.962 1.886 2.775 3.630 4.452 0.952 1.859 2.723 3.546 4.329 0.943 1.833 2.673 3.465 4.212 0.935 1.808 2.624 3.387 4.100 0.926 1.783 2.577 3.312 3.993 0.917 1.759 2.531 3.240 3.890 0.909 1.736 2.487 3.170 3.791 10 5.795 6.728 7.652 8.566 9.471 5.601 6.472 7.325 8.162 8.983 5.417 6.230 7.020 7.786 8.530 5.242 6.002 6.733 7.435 8.111 5.076 5.786 6.463 7.108 7.722 4.917 5.582 6.210 6.802 7.360 4.767 5.389 5.971 6.515 7.024 4.623 5.206 5.747 6.247 6.710 4.486 5.033 5.535 5.995 6.418 4.355 4.868 5.335 5.759 6.145 11 12 13 14 15 10.368 11.255 12.134 13.004 13.865 9.787 10.575 11.348 12.106 12.849 9.253 9.954 10.635 11.296 11.938 8.760 9.385 9.986 10.563 11.118 8.306 8.863 9.394 9.899 10.380 7.887 8.384 8.853 9.295 9.712 7.499 7.943 8.358 8.745 9.108 7.139 7.536 7.904 8.244 8.559 6.805 7.161 7.487 7.786 8.061 8.495 6.814 7.103 7.367 7.606 16 17 18 19 20 14.718 15.562 16.398 17.226 18.046 13.578 14.292 14.992 15.679 16.351 12.561 13.166 13.754 14.324 14.878 11.652 12.166 12.659 13.134 13.590 10.838 11.274 11.690 12.085 12.462 10.106 10.477 10.828 11.158 11.470 9.447 9.763 10.059 10.336 10.594 8.851 9.122 9.372 9.604 9.818 8.313 8.544 8.756 8.950 9.129 7.824 8.022 8.201 8.365 8.514 Interest rates (r) Periods (n) 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 0.901 1.713 2.444 3.102 3.696 0.893 1.690 2.402 3.037 3.605 0.885 1.668 2.361 2.974 3.517 0.877 1.647 2.322 2.914 3.433 0.870 1.626 2.283 2.855 3.352 0.862 1.605 2.246 2.798 3.274 0685 1.585 2.210 2.743 3.199 0.847 1.566 2.174 2.690 3.127 0.840 1.547 2.140 2.639 3.058 0.833 1.528 2.106 2.589 2.991 10 4.231 4.712 5.146 5.537 5.889 4.111 4.564 4.968 5.328 5.650 3.998 4.423 4.799 5.132 5.426 3.889 4.288 4.639 4.946 5.216 3.784 4.160 4.487 4.772 5.019 3.685 4.039 4.344 4.607 4.833 3.589 3.922 4.207 4.451 4.659 3.498 3.812 4.078 4.303 4.494 3.410 3.706 3.954 4.163 4.339 3.326 3.605 3.837 4.031 4.192 11 12 13 14 15 6.207 6.492 6.750 6.982 7.191 5.938 6.194 6.424 6.628 6.811 5.687 5.918 6.122 6.302 6.462 5.453 5.660 5.842 6.002 6.142 5.234 5.421 5.583 5.724 5.847 5.029 5.197 5.342 5.468 5.575 4.836 4.968 5.118 5.229 5.324 4.656 4.793 4.910 5.008 5.092 4.486 4.611 4.715 4.802 4.876 4.327 4.439 4.533 4.611 4.675 16 17 18 19 20 7.379 7.549 7.702 7.839 7.963 6.974 7.120 7.250 7.366 7.469 6.604 6.729 6.840 6.938 7.025 6.265 6.373 6.467 6.550 6.623 5.954 6.047 6.128 6.198 6.259 5.668 5.749 5.818 5.877 5.929 5.405 5.475 5.534 5.584 5.628 5.162 5.222 5.273 5.316 5.353 4.938 4.990 5.033 5.070 5.101 4.730 4.775 4.812 4.843 4.870 © Emile Woolf International 489 The Institute of Chartered Accountants of Pakistan Cost and management accounting © Emile Woolf International 490 The Institute of Chartered Accountants of Pakistan Certificate in Accounting and Finance Cost and management accounting I Index a b ABC method of inventory control 38 Abnormal gain 169,170 Abnormal loss 164 and loss with a scrap value 166 Absorption costing - advantages and disadvantages 92 Absorption costing 50,85 definition 50 Absorption rate 65 Absorption 54 Accounting for abnormal gain 169 abnormal loss 164 normal loss 159 Adverse variances 260 Allocation 54 Annuity 428, 438 Apportioning common processing costs 195 Apportionment 54, 56 Asset securitisation 409 Attainable standards 236 AVCO 18 Avoidable costs 335 Bank loans Basic standards Basis of apportionment Batch costing Batch production Bin card Bonds Bonus issue Break-even analysis chart point Budget purposes stages sales production direct materials direct labour manufacturing overhead ending finished goods inventory cost of goods manufactured cost of goods sold selling and administrative expenses capital expenditure cash master © Emile Woolf International 491 403 248 56 147 147 399 396 348 353 348 212 213 214 216 216 217 217 217 218 219 219 219 220 221 222 The Institute of Chartered Accountants of Pakistan Cost and management accounting Buffer stock Business angels By-products 30 408 197 Delivery note Delphi method Deprival value Differential cost Direct and indirect investment Direct investment Direct labour efficiency variance rate variance Direct materials usage variance Discount tables Discounted cash flow (DCF) analysis Discounting Dividends Divisibility c Capital gains Capital projects Caps, collars and floors Causal models Certificates of deposit (CDs) Changes in working capital Commercial paper Composite cost units Compound interest Computerised inventory control system Contribution per unit Contribution Contribution/Sales ratio Control reporting Conversion costs Convertible bonds Cost accounting centre formulas for inventory gap variances Cost-volume-profit analysis Currency futures options swap Current standards 394 422 415 206 406 446 399 150 427 © Emile Woolf International 269 268 264 432 422 431 394 411 e 81, 346 80 347 245 155 401 Economic order quantity (EOQ) Equity Equivalent units FIFO method weighted average cost method Equivalent units Euro bonds Expenditure variance 98 53 16 322 260 345 25 394 180 177 174 401 277 f Favourable variances FIFO method of process costing Finance lease First-in, first-out method (FIFO) Fixed overhead Fixed overheads variances - causes Fixed production overhead capacity variance overhead cost variances overhead efficiency variance overhead expenditure variance overhead volume variance Flotation Forecasting types of forecast 418 414 416 248 d DCF- assumptions about timing of cash flows Debentures Debt Decision-making: marginal costing Deep discount bond 204 337 335 410 410 422 399 397 369 400 492 260 180 405 16 74 299 287 281 286 283 283 394 203 203 The Institute of Chartered Accountants of Pakistan Index methods Forwards Futures 203 417 417 advantages disadvantages 453 453 j g JIT Goods received note production purchasing Job h Holding period Hybrids account card costing sheet Joint product further processing decisions Joint products Jury of executive opinion Just-in-Time (JIT) 411 401 i Ideal standards 248 Idle time and standard costs 251 Idle time variance 270 IFAC Sustainability framework 2.0 474 Incremental cost 334 Incremental budgeting 234 Indirect costs 48 Indirect investment 410 Inflation and long-term projects 455 Initial public offer 394 Interest rate swaps 415 Internal rate of return (IRR) method 449 Interpolation formula 450 Interrelationships between variances 292 Intrinsic value 414 Introduction (of shares) 395 Inventory ledger record Inventory records - monitoring physical inventory Inventory records 4, Inventory reorder level 29 Inventory-out 29 Investment appraisal 421 projects 421, 422 Investment vs speculation 412 IRR method © Emile Woolf International 36 36 137 137 135 136,137 387 195 204 36 l Labour efficiency variance Labour rate variance Labour variances - causes Leases Line item budgets Linear regression method Liquidity Loan notes Loan stock Losses and gains at different stages of the process 269 268 275 405 237 207 411 399 399 191 m Make-or-buy decisions Management accounting Margin of safety Marginal cost Marginal costing advantages and disadvantages and absorption costing 493 376 98 350 79 79 92,93 92 The Institute of Chartered Accountants of Pakistan Cost and management accounting assumptions 80 for decision-making 333 reporting profit 81 uses 79 Market research 204 Material purchase quantities 23 Materials mix variance 302 price variance 263,266 procedures and documentation requisition note return note variances - causes 266 wastage in standard costing 250 yield variance 303 Maximum inventory level 31 Minimum inventory level 31 Mix and yield variances 201 Mix variance 302 Money cost of capital 457 Multi product CVP analysis 357 Order quantity with price discounts Ordinary shares Outsourcing Over-absorbed fixed production overhead Over-absorption Overdrafts Overheads absorption rate apportionment cost allocation expenditure variances recovery rate Par value Performance budgeting Performance reporting Periodic inventory method review system Perpetual inventory method inventory Phases of reporting Predetermined overhead rate Preference shares Present value of a perpetuity Private equity funds placing Probability table Process costing abnormal gain joint products and by-products Production overhead expenditure variance Profit/volume chart (P/V chart) Purchase invoice order requisition Purchasing procedures 206 434 15 321 399 68 159 446 437 437 o Operating lease Operating statement - standard marginal costing Opportunity costs Options © Emile Woolf International 282 71 404 47 65 65 56 55 277 65 p n Naive approach Net present value (NPV) method Net realisable value (NRV) New product development Nominal value Non-production overheads – absorption costing Normal loss NPV calculations - presentation NPV method advantages disadvantages 27 396 376 405 300 336, 424 413 494 399 236 261 8,99 37 12,99 471 70 396 442 409 395 34 155 169 195 283 355 4 3 The Institute of Chartered Accountants of Pakistan Index Shutdown decisions 386 Simple interest 426 Single limiting factor 372 Sinking funds 430,445 Sources of finance 393,408 asset securitisation 409 business angels 408 private equity funds 409 venture capital 408 Standard costing 244 Standard costs 244, 255 Standards: reviewing 249 Statement of cost per equivalent unit 177 Statement of equivalent units 175 Stock-out 30 Sunk costs 336 Supply lead time 30 Sustainability reporting 472 q Qualitative methods - forecasting 203,204 Quantitative methods - forecasting 205 r Real cost of capital 456 Reciprocal method: simultaneous equations technique 62 Reconciling budgeted and actual profit 294 Recovery rate 65 Recovery 54 Relevant costing 333 costs of labour 339 costs of materials 337 costs of overheads 340 costs 334, 422 Reorder level 29 Rights issue 396 t Target costing Target profit and CVP analysis Time value of money Time series models Total contribution Total fixed overhead cost variance production overhead cost variance Trade Credit Treasury bills (T-bills) Two bin system s Safety inventory Sales price variance value at the split-off point basis value less further processing costs basis variances - causes variances volume variance Scarce resources Service centres costing department costs apportionment departments Setting standards Set-up costs © Emile Woolf International 30 289 195 195 291 281 290 378 321 351 414 425 205 80 281 282 407 406 37 u Under-absorbed fixed production overhead Under-absorption Usage variance 56 149 59 55 248 148 495 282 72 264 The Institute of Chartered Accountants of Pakistan Cost and management accounting v Valuation of inventory Variable overhead absorption costing costs efficiency variance Variable production overhead efficiency variance expenditure variance Variances - interrelationships Variances and controllability Venture capital Volume variance y 15 74 74 79 277 Yield variance 278 277 292 245 408 283 Zero based budgeting Zero coupon bond 303 z 233 400 w Warrants Waste Weighted average cost (AVCO) method Weighted average cost Working capital and DCF © Emile Woolf International 401 250 16 18 446 496 The Institute of Chartered Accountants of Pakistan ... Marginal costing and absorption costing 77 Cost flow in production 95 Job, batch and service costing 133 Process costing 153 Budgeting 201 Standard costing 241 10 Variance analysis 253 11 Target costing... of Pakistan Cost and management accounting © Emile Woolf International iv The Institute of Chartered Accountants of Pakistan Certificate in Accounting and Finance Cost and management accounting. .. accounting S Syllabus objectives and learning outcomes CERTIFICATE IN ACCOUNTING AND FINANCE COST AND MANAGEMENT ACCOUNTING Objective To equip candidates with techniques of cost accounting to provide a